Typically, personal loans can be repaid over several months at a low and fixed EMI. But sometimes we receive a bonus from our employer or unexpectedly from our family, which allows us to repay the entire loan amount at once. What is the best way to proceed in this case? Should you go ahead and pay entire amount of your loan? Is there a provision for prepayment offered by your lender? Let's find the answers to these questions.
What is
Pre-Payment/ Foreclosure of a Personal Loan?
Prepayment or foreclosure of personal loans is basically the process by which the borrower repays the loan before the term expires. The borrower is required to repay the principal amount to close the loan.
Things to
Consider before Pre-Closing a Personal Loan
Here are a few things that you need to consider before you decide to foreclose your loan:
Foreclosure Fees - Most lenders charge a foreclosure fee when the borrower decides to prepay the loan. Typically, foreclosure fees range from 2% to 6% of the principal amount owed at the time of foreclosure.
Lock-in Period - Most lenders have a lock-in period of several months to a year after which the borrower can prepay the loan.
Remaining EMI - You need to calculate the total amount you have to pay in terms of remaining EMI (of course if you let loan naturally) and compare it to the total amount you have to pay if you decide to foreclose the loan. This will help you figure out which method is more useful to you.
Seasonal Offers - While this is rare, there are times when lenders have seasonal offers where they waive foreclosure fees for a limited period of time. Be updated with such offers and increase your potential savings by prepaying your loan during this time.
Read More: When to choose a Personal Loan over a Secured/Collateral Loan?
What is the
Foreclosure Process?
If you have the required amount and want to prepay your instant personal loan online, you must follow the foreclosure process:
Contact Your Lender - First, borrowers need to contact their lender and generally write a request expressing their desire to foreclose the loan. Existing loan account number and all other important customer data must be specified in the application.
Payment of the principal amount-Once the lender accepts the request, they will calculate the amount owed taking into account the interest paid so far as well as the date of foreclosure. The foreclosure date will then be communicated and you must pay the amount by the specified date. A foreclosure fee is added when making the foreclosure of the loan.
Get a Certificate of Clearance - Make sure you get a no objection certificate (or NOC) from your lender stating that the full amount has been paid and nothing is due. The certificate must contain all other important information about the client.
These are some of the important factors that you must consider before you decide to foreclose your loan.
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